20. Which of the following statements is CORRECT? a. Suppose a firm changes its

Question

  20. Which of the following statements is CORRECT?

                        a.            Suppose a firm changes its credit terms from net 30 days (no discounts) to 3/10, net 40, and this change leads to a 5% increase in total sales. We can be virtually certain that the firm's accounts receivable balance will also increase.

                        b.            If a firm offers lenient credit terms to financially weak customers, this might enable it to report high sales and profits. However, some customers might not pay their bills, end up as bad debts, and thus cause the firm to report lower profits in subsequent periods.

                        c.             A firm with excess capacity and relatively low variable costs would be less inclined to extend liberal credit terms than the same firm if it were operating at close to capacity.

                        d.            A revolving credit agreement is a particular type of line of credit that firms with surplus cash use in order to obtain a higher rate of return on their cash balances.

Explanation / Answer

a. false

b. true

c. false

d. true

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